Overview: Equities are recovering from dramatic losses. Today, the Nikkei, Hang Seng, and Kospi surged by more than 2%. The large markets in the region advanced except India. Europe's Stoxx 600 is up about 1.2% near midday after falling 0.75% yesterday. It is nearly flat on the week after falling for the past four weeks. US futures are 1%+ higher. Benchmark 10-year yields are firmer across the board. The 10-year US Treasury yield is slightly below 2.90%, while European yields are 4-8 bp higher and the peripheral premiums are a little wider. The dollar is mixed with the Scandis, Canadian dollar, and Swiss franc posting modest upticks. The euro, sterling, and yen are struggling. Emerging market currencies are mixed with little obvious rhyme or reason geographically. The freely accessible emerging market currencies are also mixed. Gold extended yesterday's sell-off to test the $1812 area before stabilizing. Now near $1821, gold is off about 3.3% this week. June WTI posted an upside reversal in the middle of the week, after falling to $98.20. It is extending yesterday's gains and testing the $108 area. US natgas is edging higher. It has not fallen since Monday. Europe's benchmark surged 12% yesterday as Russia reduced gas supplies to Germany, but is almost 3% lower today. Iron ore is up about 1.2% to pare this week's loss to a little less than 8%. Copper is off slightly and is down 4% this week. It is the fourth consecutive weekly fall and it has shed around 15% during this run. After being up yesterday on the back of a sobering report from the USDA, July wheat has stabilized so far today. Asia Pacific News that the extended lockdown of Shanghai may end as early as this weekend appears to have helped global markets stabilize today. Reports suggested officials expect "no community spread" of Covid by mid-May. There was a slight rise in cases in Beijing but officials deny that it was edging toward a lockdown as it tries to calm fears that appeared to have spurred panic food shopping and hoarding. Separately, China reported its lending figures collapsed in April. Aggregate financing, which includes banks and shadow bank lending, fell to CNY910 bln. Economists had under-appreciated the impact of the lockdowns and had forecast (median Bloomberg survey) a CNY2.2 trillion increase. Bank lending accounted to about 2/3 of the increase. The Hong Kong Monetary Authority stepped up its intervention to defend the currency peg to the dollar. There have been three rounds of intervention over the past two sessions. After not needing to intervene to support the Hong Kong dollar since March 2019, the de-facto central bank has bought a little more than $1 bln between yesterday and today. The US dollar is allowed to trade between HKD7.75 and HKD7.85. If the broad upward pressure on the greenback does not subside, HKMA intervention could be more persistent. Despite Beijing's desire to reduce the influence of the US dollar, the officials remain committed to the peg. It has hiked rates alongside the Federal Reserve and will continue to do so. The US dollar is recovering after approaching JPY127.50 yesterday, which is low since April 27. It finished below the 20-day moving average (~JPY129.15) for the first time in two months. Higher US yields today helped the greenback recover to around JPY129.35. The dollar's nine-week advancing streak is coming to an end. Recall that last week, it settled near JPY130.55. The Australian dollar is also stabilizing, after falling around 2.25 cents in the past two sessions. The recovery off yesterday's low (~$0.6830) has stalled slightly above $0.6900, which leaves the Aussie more than 2.5% lower on the week. Without a stronger recovery in North America today, it will be the third week in the past four that it has recorded more than 2% depreciation. That said, a close above $0.6940 would help lift the tone. The greenback initially pushed above CNY6.80 for the first time since October 2020. The recovery of the mainland stocks and the broader pullback in the dollar steadied the yuan. The exchange rate is little changed net-net around CNY6,7860. Still, the dollar is up around 1.8% this week, its sixth consecutive weekly advance. Again, the PBOC set the dollar's reference rate lower than the market (Bloomberg survey) expected: CNY6.7898 vs. CNY6.7967. It was the ninth consecutive session, and the lower fix is a way officials can moderate the yuan's depreciation. Europe Tensions over the Northern Ireland protocol are rising and may come to a head next week. Apparently, no progress was achieved in yesterday's talks. The EC has indicated it could consider modifications in the agreement but the UK says it is untenable. Without greater EC flexibility, the UK is threatening unilateral action. The government is reportedly preparing domestic legislation to override large parts...

Outlook: The calendar today has import and export prices and revisions to various other data, but the only potential market-mover is the preliminary May University of Michigan's consumer confidence index. As we complain quite often, it’s based on a tiny sample and doesn’t deserve the headline. Weirdly, the market didn’t focus on PPI, which rose 0.5% m/m in April, pretty much in line with forecasts and better than 1.6% the month before–but only on the m/m basis. Trading Economics reports “Year on year, wholesale prices rose 11%, above market expectations of a 10.7% gain and compared to 11.5% in March. Still, producer inflation is running at the highest rate in 40 years and the report didn’t show much sign that price pressures will ease considerably in the near future.” The important news also went by with little notice–Fed chief Powell said we should expect 50 bp hikes at each of the next two meetings, meaning July as a well as June. He also said whether the US gets a recession is due to factors outside the Fed’s ability to control. We are glad to hear this–maybe it will shut up some of the more stupid commentators. Perhaps Powell is a little braver now that he was confirmed for another term. For what it’s worth, we think the ultra-dove Kashkari (Minneapolis) repeating that the neutral rate is about 2% is discrediting to doves. It’s a foolish statement that implies the current bout of inflation is, historically, an aberration. For what it’s worth, Musk put the acquisition of Twitter on hold to investigate whether the company accurately represented the percentage of users who are fake in any way. This moves the debate from freedom of speech to corporate lies and corporate management. Nobody know whether he has an ulterior motive here but he is sure getting enough publicity for any ego. Separately, all the cryptos are tanking, even those named “stable-something.” Told you so. This is very much a TGIF Friday. Volatility in equities has been exhausting. Even the retreat and recovery in the bond market has been troubling. We chose to stay out of pretty much everything today, not only because of all that uncertainty but also because on recent Fridays, traders have bailed from their positions in droves. It can go without saying that the dollar is overbought and some currencies are so oversold (pound, Swiss franc) that there is no justification to hold, lest something emerge from left field and restore normalcy. We continue to see a strong dollar, but beware the looming correction. This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes. To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

Summary United States: Don't Look Down Yet Consumer price inflation may have peaked, but the climb down from here will not be free of obstacles. The CPI and PPI rose 0.3% and 0.5%, respectively, in April. Small business optimism stalled during the month, as owners are concerned about their ability to continue to pass on higher costs to consumers. Next week: Retail Sales (Tues), Industrial Production (Tues), Housing Starts (Wed) International: Inflation Plague Continues in Emerging Markets Price growth is a global problem; however, inflation seems to be more of a problem across the emerging markets. With commodity prices still high and weak local currencies, most emerging market countries are experiencing above-target inflation. Next week: UK CPI (Wed), Japan CPI (Thurs), South Africa Reserve Bank (Fri) Interest Rate Watch: Will Tighter Financial Conditions Lead to a More Dovish Fed? In the post-FOMC meeting press conference last week, Chair Powell indicated that financial conditions would need to tighten to help the Fed restore price stability. The Bloomberg Financial Conditions Index began to tighten early this year when FOMC members signaled that the committee would become more aggressive in battling inflation. This week, conditions tightened further to the least-supportive posture in two years. Credit Market Insights: Consumer Credit Overdelivers for a Second Month Consumer credit grew by a record $52.4B in March as it more than doubled consensus estimates for the second month running. The surge was relatively well-balanced, with revolving credit—mostly linked to credit card spending—rising $31.4B, while nonrevolving credit climbed a slightly lower $21.4B. Topic of the Week: Fertilizer Crunch Threatens to Drive Food Prices Higher Rising food prices continued to sting consumers in April as grocery prices and prices for food away from home rose 1.0% and 0.6%, respectively. A global supply shortage of chemical fertilizers may put further pressure on already strained food commodity markets. Download the full report

There are currently increasing indications that global economic growth will slow down in the coming quarters. The leading indicator of the OECD for the world economy weakened in April to an index value of around 100.2. In the downturns since 2000, it took an average of around 12 months to reach the cyclical low from this index level in times of growth slowdown. Based on this data, the cyclical cooling of the global economy could therefore last until spring 2023. Currently, the significant increase in inflation in some economies such as the Eurozone is already putting a considerable strain on private consumption. The outbreak of war in Ukraine has exacerbated the rise in inflation at a global level through energy and food prices. Unfortunately, there are no signs of any significant relaxation here in the short term. The current cooling of commodity prices that are sensitive to the economy, such as copper, could dampen global inflationary pressures in the longer term. On the other hand, falling raw material prices are another indicator of a slowdown in the global economy. In addition, unexpectedly strict Covid-related containment measures in China are further clouding the global economic outlook. This could again exacerbate the problems within the value chains. The sharp slump in sentiment among purchasing managers in April suggests that China's economy is currently under severe pressure. Due to a health system that is still poorly developed compared to the EU, the Chinese government believes that the strict restriction measures are unavoidable. However, this also means that far-reaching restriction measures in the event of further virus mutations could lead to renewed burdens on China's economy in the coming years. In view of the high rates of inflation, unlike the cyclical cooling phases of the recent past, the global economy cannot initially count on any support from the important central banks. On the contrary, both the US Fed and the ECB are only just beginning to tighten their monetary policy. With the exception of southern Europe, there are no signs of any significant fiscal policy support for the economy in other countries in the Eurozone. We are currently expecting GDP growth of 2.8% for the Eurozone in 2022. In view of the increasing risks for the global economy, however, this forecast is subject to downside risks. Download The Full Week Ahead

A combination of negative factors dragged EUR/USD to a fresh multi-year low on Thursday. Aggressive Fed rate hike bets, the risk-off mood continued underpinning the safe-haven USD. Looming recession risk led by the Ukraine crisis exerted heavy downward pressure on the euro. The EUR/USD pair witnessed aggressive selling on Thursday and finally broke down through a near one-week-old trading range. The steep intraday decline dragged spot prices to the lowest level since January 2017 and was sponsored by a combination of factors. The US dollar rallied to a fresh 20-year high amid the global flight to safety. The markets now seem worried that a more aggressive policy tightening by major central banks to constrain inflation could hit global economic growth. This, along with the resurgence of geopolitical tensions, took its toll on the risk sentiment and forced investors to take refuge in the traditional safe-haven assets. In the latest developments surrounding the Russia-Ukraine saga, the latter announced that it would suspend Gazprom gas transit on its territory. Separately, Finland confirmed that it would apply to join NATO "without delay" and Sweden is expected to follow suit, citing security concerns following Russia's invasion of Ukraine. Meanwhile, Russia vowed an unspecified response. Given its proximity to the Ukraine war, the Eurozone's economy is expected to suffer the most from the crisis. This might prevent the European Central Bank from lifting interest rates and leave it even further behind the Fed, which exerted additional pressure on the euro. Meanwhile, the anti-risk flow led to the overnight sharp fall in the US Treasury bond yields and kept a lid on any further gains for the greenback. Apart from this, hawkish comments by ECB policymakers, hinting towards a July interest rate hike, extended some support to the pair amid extremely oversold conditions. Furthermore, a goodish rebound in the US equity futures undermined the safe-haven buck and assisted the EUR/USD pair in regaining some positive traction during the Asian session on Friday. That said, any meaningful recovery still seems elusive. Market participants now look forward to the Eurozone Industrial Production data and the prelim US Michigan Consumer Sentiment Index for some impetus on the last day of the week. Technical outlook From a technical perspective, the pair stalled the overnight slump near the 1.0350 area, just ahead of the 2017 swing low. The latter, around the 1.0340 region, should now act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders. The pair might then accelerate the downward trajectory towards the 1.0300 round figure en route to the next major support near the 1.0210-1.0200 zone. On the flip side, any meaningful recovery back above the 1.0400 mark is more likely to confront stiff resistance and remain capped near the 1.0475 region. This is closely followed by the 1.0500 psychological mark, above which a bout of short-covering has the potential to lift back towards the 1.0580-1.0600 area.

A combination of negative factors dragged EUR/USD to a fresh multi-year low on Thursday. Aggressive Fed rate hike bets, the risk-off mood continued underpinning the safe-haven USD. Looming recession risk led by the Ukraine crisis exerted heavy downward pressure on the euro. The EUR/USD pair witnessed aggressive selling on Thursday and finally broke down through a near one-week-old trading range. The steep intraday decline dragged spot prices to the lowest level since January 2017 and was sponsored by a combination of factors. The US dollar rallied to a fresh 20-year high amid the global flight to safety. The markets now seem worried that a more aggressive policy tightening by major central banks to constrain inflation could hit global economic growth. This, along with the resurgence of geopolitical tensions, took its toll on the risk sentiment and forced investors to take refuge in the traditional safe-haven assets. In the latest developments surrounding the Russia-Ukraine saga, the latter announced that it would suspend Gazprom gas transit on its territory. Separately, Finland confirmed that it would apply to join NATO "without delay" and Sweden is expected to follow suit, citing security concerns following Russia's invasion of Ukraine. Meanwhile, Russia vowed an unspecified response. Given its proximity to the Ukraine war, the Eurozone's economy is expected to suffer the most from the crisis. This might prevent the European Central Bank from lifting interest rates and leave it even further behind the Fed, which exerted additional pressure on the euro. Meanwhile, the anti-risk flow led to the overnight sharp fall in the US Treasury bond yields and kept a lid on any further gains for the greenback. Apart from this, hawkish comments by ECB policymakers, hinting towards a July interest rate hike, extended some support to the pair amid extremely oversold conditions. Furthermore, a goodish rebound in the US equity futures undermined the safe-haven buck and assisted the EUR/USD pair in regaining some positive traction during the Asian session on Friday. That said, any meaningful recovery still seems elusive. Market participants now look forward to the Eurozone Industrial Production data and the prelim US Michigan Consumer Sentiment Index for some impetus on the last day of the week. Technical outlook From a technical perspective, the pair stalled the overnight slump near the 1.0350 area, just ahead of the 2017 swing low. The latter, around the 1.0340 region, should now act as a key pivotal point, which if broken decisively will be seen as a fresh trigger for bearish traders. The pair might then accelerate the downward trajectory towards the 1.0300 round figure en route to the next major support near the 1.0210-1.0200 zone. On the flip side, any meaningful recovery back above the 1.0400 mark is more likely to confront stiff resistance and remain capped near the 1.0475 region. This is closely followed by the 1.0500 psychological mark, above which a bout of short-covering has the potential to lift back towards the 1.0580-1.0600 area.